Chapter 7 Bankruptcy: Complete Guide

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy, also known as "liquidation bankruptcy" or "straight bankruptcy," is the most common form of consumer bankruptcy in the United States. It allows individuals and businesses to discharge (eliminate) most unsecured debts in a relatively short period—typically 3 to 4 months from filing to discharge.

In a Chapter 7 case, a bankruptcy trustee is appointed to review your assets and determine if any non-exempt property can be sold to pay creditors. However, most Chapter 7 cases are "no-asset" cases, meaning all property is protected by exemptions and nothing needs to be sold. Once the process is complete, qualifying debts are permanently discharged, and you receive a fresh financial start.

Who Qualifies for Chapter 7?

To file Chapter 7 bankruptcy, you must meet specific eligibility requirements:

1. The Means Test

The primary qualification for Chapter 7 is passing the means test, which has two parts:

Part 1: Income Test

If your household income (based on the 6 months before filing) is below your state's median income for your household size, you automatically qualify. No further calculations needed.

Part 2: Disposable Income Calculation

If your income exceeds the state median, you must calculate your disposable income using IRS standards and allowable expenses. If your disposable income is low enough (generally less than $8,175 per year), you can still qualify.

Learn More About the Means Test → Calculate Your Eligibility

2. Credit Counseling Requirement

You must complete an approved credit counseling course within 180 days before filing. This typically costs $10-50 and can be completed online in about an hour.

3. Previous Bankruptcy Filings

If you received a Chapter 7 discharge within the past 8 years, or a Chapter 13 discharge within the past 6 years, you generally cannot file Chapter 7 again until the waiting period expires.

What Debts Can Be Discharged?

Chapter 7 can eliminate most unsecured debts, including:

• Credit card debt - All balances are discharged
• Medical bills - Including hospital bills, doctor bills, and ambulance charges
• Personal loans - Unsecured bank loans and payday loans
• Collection accounts - Debts in collections or sold to debt buyers
• Utility bills - Past-due electric, gas, water, phone bills
• Business debts - For sole proprietors and personal guarantees
• Lawsuit judgments - Most civil judgments (except fraud or willful injury)
• Repossession deficiencies - Balance owed after vehicle repossession
• Foreclosure deficiencies - Balance after home foreclosure (in non-recourse states)

What Property Can You Keep?

Bankruptcy exemptions protect essential property from being sold by the trustee. Most people filing Chapter 7 keep all their property because it's fully exempt.

Commonly Protected Assets:

Asset Type	Federal Exemption	State Variations
Home Equity	$27,900 ($55,800 married)	Ranges from $0 to unlimited (varies by state)
Vehicle	$4,450	$1,000 to $15,000+ depending on state
Household Goods	$700 per item, $14,875 total	Usually fully protected
Retirement Accounts	Unlimited (401k, IRA, pension)	Fully protected in all states
Tools of Trade	$2,800	Varies by state
Wildcard	$1,475 + unused homestead	Some states offer additional wildcard

Note: Exemption amounts are current as of 2026 and adjust every 3 years for inflation. You can choose either federal exemptions or your state's exemptions, depending on where you live and how long you've lived there.

Complete Exemption Guide → Calculate Your Exemptions

Chapter 7 Timeline: What to Expect

Detailed Timeline Guide →

Pros and Cons of Chapter 7

Chapter 7 vs. Chapter 13: Which is Right for You?

Choose Chapter 7 if you:

• Have mostly unsecured debt (credit cards, medical bills)
• Pass the means test
• Want the fastest debt relief
• Don't have significant non-exempt assets to protect
• Are current on secured debts (mortgage, car) or willing to surrender them

Choose Chapter 13 if you:

• Don't pass the Chapter 7 means test
• Are behind on mortgage or car payments and want to catch up
• Have non-exempt assets you want to keep
• Have non-dischargeable priority debts (taxes, child support)
• Want to strip second mortgages
• Filed Chapter 7 recently and don't qualify again yet

Detailed Comparison → Learn About Chapter 13 →

How Much Does Chapter 7 Cost?

Court Filing Fee: $338 (may be waived if income is below 150% of poverty line)

Attorney Fees: Typically $1,000-$3,000 depending on location and case complexity. This is often paid before filing.

Credit Counseling: $10-$50 (required course before filing)

Financial Management Course: $10-$50 (required course after filing)

Total: Most people pay $1,400-$3,500 total for a straightforward Chapter 7 case.

Next Steps

1. Take the Means Test: Use our free calculator to see if you qualify for Chapter 7.
2. Review Your State's Exemptions: Determine what property you can protect.
3. Consult a Bankruptcy Attorney: Get professional guidance for your specific situation.
4. Gather Documents: Prepare tax returns, pay stubs, bank statements, debt information.
5. Complete Credit Counseling: Within 180 days before you plan to file.
6. File Your Petition: With the help of your attorney or pro se.

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